Ports Regulator 2016/17 Annual Report; South African Maritime Services Authority: meeting postponed

NCOP Economic and Business Development

14 November 2017
Chairperson: Mr M Rayi (ANC, Eastern Cape)
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Meeting Summary

Annual Reports 2016/17

The Committee did not allow the SA Maritime Services Authority (SAMSA) to go ahead with the briefing. The Committee had previously taken a decision that in principle when entities appeared before the Committee, its Board Chairperson and CEO had to be part of the briefing delegation. SAMSA fell short in both instances. It did not have a CEO appointed and its Board Chairperson was unable to attend the meeting due to a previous engagement. To make matters worse the Annual Report 2016/17 of the SAMSA had not yet been tabled in Parliament. Members also observed that the Annual Report had not been provided to the Committee nor was it available on the SAMSA’s website. Members questioned what the point of the briefing would be if the actual Annual Report was not available. Members observed that there seemed to be problems at the SAMSA. They asked how the Committee was expected to do oversight on the performance of the SAMSA without its Annual Report. It was agreed that the Minister of Transport, the Department of Transport (DoT) and the Board Chairperson would have to be present at the rescheduled briefing meeting. In the meantime members asked that the SAMSA Board be asked to provide the Committee with timeframes on when issues at SAMSA would be addressed. 

The Ports Regulator of SA briefed the Committee on its Annual Report 2016/17. Delivery targets had also been exceeded in the past year with the Ports Regulator of SA obtaining a clean audit for the third time. All eighteen targets had been achieved for 2016/17.

Some challenges faced by the Ports Regulator of SA were that it had a R6m drop in budget between last year and the current year. Additional baseline funding was required to employ more staff. The resignation of Members of the Board and the expiration of tenure of current Members of the Board in August 2018 was a concern.  

Many important initiatives are being undertaken, such as:

  • the development of the Port Tariff Incentive Program (PTIP)
  • the development of a Regulatory Asset Valuation Methodology
  • the Implementation of an operational efficiency incentive as part of the tariff setting process (The Weighted Efficiency Gains from Operations (WEGO)

In the years ahead the Regulator intends to expand its role in:

  • transformation and B-BBEE participation of the sector
  • the analysis of lease and rental pricing in ports
  • greater scrutiny and prudency assessment of capital investments
  • the development of an Asset Valuation Methodology, arising out of the valuation of a sample of NPA assets

Concerns were raised about the competitiveness of South African ports, the importation of illicit goods and the deliberate incorrect labelling of goods to get around the paying of the required import tariffs. Members further raised concern about foreign fishing vessels illegally fishing in South African waters. Members understood that it was a difficult exercise to bring the culprits to book for as soon as they were beyond South African waters they could not be arrested. Did the Ports Regulator of SA engage with communities that lived along SA’s coastlines to ensure that resources were protected? The Ports Regulator of SA was asked whether it was using information technology to its max and what legislative amendments are needed. 

Meeting report

Briefing by SA Maritime Services Authority (SAMSA) on its Annual Report 2016/17

The delegation comprised of Mr Murvyn Burton, SAMSA Board Member, Mr Phumlani Myeni, Chief Financial Officer (CFO), Mr Lolo Raphadu, SAMSA Committee Secretary and Mr Vusi September, Senior Manager: Office of the Chief Operations Officer (COO). Mr Mthunzi Madiya Acting Deputy Director General: Maritime represented the Department of Transport (DoT).

Mr Raphadu pointed out that SAMSA did not have a Chief Executive Officer (CEO). The vacant post had not been filled yet.

The Chairperson extended the apology of Minister of Transport Mr Joe Maswanganyi to the Committee. He added that the Committee had taken a decision that in principle when entities appeared before it the Chairperson of the Board of the entity and the Chief Executive Officer (CEO) had to be part of the briefing delegation.

Mr Madiya stated the CEO of the SAMSA would have attended the meeting but had to attend a meeting in the National Assembly.

The Chairperson replied that Mr Raphadu had just stated that there was no SAMSA CEO.

Mr Raphadu explained that the former SAMSA CEO had resigned in June 2016. The Chief Operating Officer (COO) had taken over as Acting CEO. However legislation only allowed for a person to be an Acting CEO for a maximum period of 12 months which ended in May 2017. The SAMSA Board had in December 2016 gone on a recruitment drive for a CEO. No suitable candidate was found thus far. So there was no CEO or Acting CEO. With regards to the Board Chairperson, Mr Mavuso Msimang, he said that board members sometimes had commitments way ahead of time. SAMSA had only the week before been notified by the Department of Transport (DoT) about the present meeting. As a result due to previous commitments the Board Chairperson could not make it to the meeting. The Board Chairperson was part of a committee which dealt with the appointment of a service provider for the Social Security Agency of SA (SASSA). That committee was presently having a sitting. He had a letter in his possession from the Board Chairperson explaining why he could not attend the meeting.

The Chairperson informed the SAMSA that the Committee was not in possession of its Annual Report 2016/17. Members had also only the day before received the presentation document. He noted that the Portfolio Committee on Transport had submitted its Budgetary Review Recommendations Report (BRRR) to Parliament without it containing an update on the state of SAMSA. The Annual Report 2016/17 was not even available on the SAMSA’s website. From the Committee’s side, the notice of the meeting had been sent a long while ago. SAMSA had not been informed by the DoT. The matter needed to be raised with the Minister.

Mr Raphadu pointed out that the SAMSA had challenges. It could not submit its Annual Report 2016/17 in time to Parliament. The Annual Report 2016/17 had not yet been tabled in Parliament.

Mr E Makue (ANC, Gauteng) said that this was a recurring problem by the DoT in the manner in which it responded to requests by the Committee. In 2016, he had complained by writing a letter to the Minister of Transport. The expectation of the Committee was for the Executive to be present in meetings. In the present instance neither the Minister nor the Board Chairperson was present in the meeting. It was however understandable that the Board Chairperson was attending the SASSA meeting. From what he had observed, SAMSA was not in a good space. It was concerning to the Committee. In his view, it was necessary for the Committee to communicate to the SAMSA Board that it was not pleased with the organisation’s state of affairs. SAMSA Board needed to provide the Committee with a timeframe as to when things at the organisation would be addressed.

The Chairperson read out the letter provided by the Board Chairperson. The essence of the letter was that the Board Chairperson was one of a panel of experts to monitor the implementation of the order of Constitutional Court which spoke to the distribution of the SASSA grant to beneficiaries. It also stated that the SAMSA was given late notice by the DoT of the present meeting. The letter also spoke about the SAMSA Board making recommendations to the Minister of Transport that the appointment of a CEO should be done within a year. The Boar Chairperson further stated that the Minister’s promises of appointing a CEO had come to nothing. Another issue brought to the attention of the Minister was the fact that the terms of office of two SAMSA Board members was to end but thus far the Minister had done nothing.

Mr B Nthebe (ANC, North West) would have liked to have zoomed into the problems of SAMSA. However there was no Annual Report that the SAMSA could speak to. It had not even been submitted to Parliament. The terms of two SAMSA Board members were also to end. He suggested that the Committee look at its programme and make provision for a meeting with the Minister and the SAMSA Board so that issues could be fleshed out.   

Mr W Faber (DA, Northern Cape) agreed with Mr Nthebe’s sentiments.

Mr Makue also agreed with the sentiments but added that the Chairperson needed to meet with the Chairperson of the Portfolio Committee on Transport so that a combined effort could be made to resolve issues.

The Chairperson noticed that the aforementioned letter was addressed to the Chairperson of the Portfolio Committee on Transport. Even the heading page of the presentation document referred to the Portfolio Committee on Transport and not the Committee. Addressing SAMSA, he said that there were two houses in Parliament ie the National Assembly (NA) and the National Council of Provinces (NCOP). The PowerPoint presentation should be based on the actual Annual Report 2016/17 of SAMSA. He pointed out that the Office of the Auditor General of SA (AGSA) in SAMSA’s 2015/16 Annual Report had raised a great deal of issues around irregular, fruitless and wasteful expenditure as well as on performance. He had read through the PowerPoint presentation document but had not found anything around issues raised by the AGSA. He observed that it was a trend by departments and entities to not refer to the AGSA when things were not going well but when they received a clean audit the AGSA was mentioned countless times. The PowerPoint presentation did not even speak to SAMSA’s audit outcome. In the next meeting with the organisation, the Minister and the Board Chairperson needed to be present. The Minister would have to be bound to a date to meet with the Committee. Issues like the appointment of a CEO for the SAMSA and the replacement of outgoing Board Members needed to be addressed.

Mr Makue said that there were repercussions for the country if SAMSA was not performing as it should. At the end of 2017, SA was to attend a World Trade Organisation (WTO) meeting. The aim had been to get continental value in agriculture and fisheries which were issues to have been negotiated on at the WTO meeting. There were two threats to the fishing industry. First there was over fishing and second, fisherman who fished for subsistence needed to benefit instead of multinational companies. With things as it stood presently with SAMSA, Members hands were now tied. Information contained in the PowerPoint presentation could not be used in the WTO meeting. It was evident that the poor in SA were affected by the SAMSA’s challenges. The Committee needed to get the Annual Report 2016/17 from the SAMSA as soon as possible as it impacted upon the lives of South Africans. 

Mr Raphadu wished to speak to issues raised but the Chairperson interjected that these would be addressed in the rescheduled meeting sometime in the near future.

The Committee agreed that the briefing could not go ahead. The SAMSA delegation was excused from the meeting.

Briefing by the Ports Regulator of SA on its Annual Report 2016/17

The delegation comprised of Mr Mahesh Fakir Chief Executive Officer (CEO), Mr Thokozani Mhlongo CFO and Ms Thato Tsautse, Ports Regulator of SA Board Member. The briefing was shared amongst the delegation.

The Ports Regulator of SA aimed to reduce the cost of doing business in SA as well as to reduce the cost of exporting South African manufactured goods to the world through a fair and well structured tariff. 2016/17 saw the publication of the Ports Regulator of SA’s second multi-year Tariff Methodology. Delivery targets had also been exceeded in the past year with the Ports Regulator of SA obtaining a clean audit for the third time. All eighteen targets had been achieved for 2016/17.

The Broad Based Black Economic Empowerment (BBBEE) target had been exceeded with 89.63% of total procurement being from BBBEE as per framework. The Ports Authority of SA had also provided legal advice to the Minister of Transport regarding two section 79 requests. There was a 5.9% average tariff change for 2017/18 which was below inflation. On financials the Ports Regulator of SA for 2016/17 had a budget of just under R30m. The intention was to raise more revenue. The Ports Regulator of SA would like to have a budget of around R50m. With the view of having its budget increased the Ports Regulator of SA wished to have amendments made to the National Ports Act.

The organisation’s challenges were outlined as follows:

  • R6m drop in budget between last year and the current year (over 20% drop)
  • Additional baseline funding is required to employ more staff and capacitate the Regulator, as once off additions can’t be committed for recurrent expenditure items. Current funding is not sufficient to complete the organogram to fully discharge the mandate. Two key executive level posts are unfunded in Economic Regulation and Industry Development.
  • Despite limited staff capacity as a result of low budget, the Regulator has done its best, however the minimal employees (2-3) in each department may result in possible delays to future Regulator programmes and the implementation thereof ,or the risk of an unreliable service to its stakeholders.
  • Amendments to the Act are required in order to give the Regulator increased powers and resources in order to honour its mandate through the proposed funding model which will reduce fiscal reliance and reliance on the DoT budget.
  • Legal reviews/challenges to the Regulator require a larger financial reserve set-aside in order to buffer against large legal costs (in relation to its small budget).
  • Resignation of Members - We would appreciate additional Regulator Members (within the legal profession) that could assist in eliminating tribunal backlogs – commensurate support budget also required to offset greater costs.
  • Tenure of the current Regulator members will expire on 31 August 2018 - propose that DoT start the process early to ensure that governance is not affected.

Many important initiatives are being undertaken, such as:

  • the development of the Port Tariff Incentive Program (PTIP)
  • the development of a Regulatory Asset Valuation Methodology
  • the Implementation of an operational efficiency incentive as part of the tariff setting process (The Weighted Efficiency Gains from Operations (WEGO)

In the years ahead the Regulator intends to expand its role in:

  • transformation and B-BBEE participation of the sector
  • the analysis of lease and rental pricing in ports
  • greater scrutiny and prudency assessment of capital investments
  • the development of an Asset Valuation Methodology, arising out of the valuation of a sample of NPA assets

All these issues will be attended to whilst the Regulator still continues with other ongoing analytical, tribunal and compliance work.

Discussion

Mr Faber was a bit concerned about SA’s competitiveness. Namibia was pushing for the development of its Walvis Bay Port. Namibia intended the Walvis Bay to be the new hub for the Southern African Development Community (SADC). The intention was for Walvis Bay to offer better pricing. A total of R4.3bn had been invested in container terminals at Walvis Bay. He was concerned that South African ports like Cape Town and Port Elizabeth would lose out. He felt that SA should not sit back and let this happen. He pointed out that Walvis Bay had a dry dock. Namibia intended to take things up the West Coast to Nigeria. SA needed to stay competitive. The Ports Regulator of SA was asked what its plans were to stay competitive.

Mr Fakir, on competitiveness, said that the Ports Regulator of SA had done a study on continental reports. It was difficult for him to see Namibia as a competitor as SA would want to see Namibia succeed in its endeavours. However he did agree that SA needed to remain competitive. Studies had been done to gauge SA’s competitiveness. The issue was whether tariff prices were priced right. The Ports Regulator of SA was moving towards cost reflective tariffs. There had to be some form of returns. A continental ports study was being done. If Namibia was to succeed if would be a corridor to the Gauteng Province. It would be another avenue for South African exports and imports. SA would not want its neighbours to fail.

Mr Faber responded that Members had to look out for the interests of their respective provinces. The Northern Cape Province had an interest on the West Coast too.

Mr Fakir stated that the Ports Regulator of SA was guided by the DoT.

Mr Madiya said that the week before the DoT had met with the Northern Cape Provincial Government. The DoT was taking the issue very seriously. There was a steering committee made up of the DoT, the Northern Cape Provincial Government and the National Ports Authority. Work was being done around the Boggomsbaai Port. Competitiveness or the lack thereof in the port system was due to a lack of implementing the National Ports Act fully. The structure of the National Ports Authority sat with Transnet. Income that was generated by ports went to the Transnet Group. The Group would decide if funds come back to ports. The National Ports Authority needed to be independent to do oversight over ports. The DoT did not think SA’s ports to be competitive. The levers were in place for ports to be competitive. Operation Phakisa Saldanha Bay had been earmarked to compete for the dry dock market that Walvis Bay was doing. Ideally the National Ports Authority was to build the structure at Saldanha Bay. The project to build ship repair facilities at Saldanha Bay was way behind. On fishing vessels illegally fishing in South African waters, he said that once they reached international waters they could not be arrested. The Transport Ministers of many African countries had gotten together to deal with the matter. These countries would be allowed to arrest perpetrators. He considered it a progressive initiative by countries along the coast.   

Mr Makue, on the economic regulation of ports, pointed out that the South African Revenue Services (SARS) had been working on improving technology to identify illicit goods. There was also the issue of goods that were labelled incorrectly. For example, clothing was labelled as curtains. Was enough being done on illicit goods? Was there something from the Committee’s side in terms of legislation that could be done? On stakeholder engagement he noted that there had been media reports which spoke about foreign ships raiding SA’s fish stocks on the open seas. These ships often got away without being caught.

Local fishermen said that they were in radio communication with other fishing vessels and thus could assist government with catching the culprits. The local fisherman spoke about atrocities. The Ports Regulator of SA was asked whether there was truth to the allegations by the fishermen. Did the Ports Regulator of SA engage with communities that lived along SA’s coastlines to ensure that resources were protected?

Ms Tsautse said that the Ports Regulator of SA shared the same sentiments as Members over security. SA’s port system and oceans should be used for good and not for illicit goods. The mandate of the Ports Regulator of SA was to do port regulation. Safety fell within the mandate of SAMSA. The import of illicit goods into SA impacted upon the fiscus. The Ports Regulator of SA did have stakeholder engagements on security and participated indirectly. The intention was to deal with illicit goods and misdeclarations. Fisheries did not fall within the mandate of the Ports Regulator of SA. It was the responsibility of the Department of Environmental Affairs.  

Mr Fakir explained that the National Regulator for Compulsory Specifications (NRCS) dealt with specifications of goods in containers. The National Ports Act did not mandate the Ports Regulator of SA to do this type of work. Besides the Ports Regulator of SA did not have an inspectorate to check on goods.

Dr Y Vawda (EFF, Mpumalanga) said if the Ports Regulator of SA was implementing information technology, he asked if it was being utilised to its max. Given that the Ports Regulator of SA had done comparative research he asked how SA compared to other countries.

Mr Fakir conceded that the information technology systems at the Ports Regulator of SA were fairly rudimentary. He pointed out that there was no information technology system in the world that could do a tariff system. The Ports Regulator of SA developed its own information technology spreadsheets. However there were information technology policies in place. The National Ports Authority was investing in a Smart Ports Concept. The comparative research had compared pricing and performance. The Ports Regulator of SA used information to check on how its interventions were working. Its tariff strategy outlined tariffs for the next ten years. The Ports Regulator of SA’s shipping prices was lower than other countries. Prices on coal exports were also lower than other parts of the world. Differentiation pricing was used to get the Ports Regulator of SA to where it wished to be in ten years time.

The Chairperson asked whether there were projects that were affected by the Ports Regulator of SA’s limited budget. He asked the Ports Regulator of SA, besides calling for the amendment of legislation which would allow for its budget to be increased, whether there were any other legislative amendments that it required. He noted that legislative amendments usually took time. There should be an arrangement between the Ports Regulator of SA, the DoT and National Treasury which would allow the process to go quicker.

Ms Tsautse, on possible amendments to legislation, said that the Ports Regulator of SA had a number of challenges on the implementation of its mandate. In terms of existing legislation, one of the Regulator’s stakeholder had acted ultra vires. The Ports Regulator of SA looked at the National Ports Act in its entirety. The Ports Regulator of SA regulated the National Ports Authority and not the ports system. The National Ports Authority was the regulator of the port sector. The Ports Regulator of SA determined tariffs. The idea was to have parity with the National Ports Authority. The Ports Regulator of SA only looked at Broad Based Black Economic Empowerment (BBBEE) as it pertained to the National Ports Authority and not the ports sector. South Africans needed to participate in the ports sector. Unfortunately foreign companies were the main players in SA’s port system. Issues of inclusivity and competitiveness would be dealt with. 

Mr Fakir said that the Ports Regulator of SA had implemented all its projects. The reality was that the Board increased the workload of the Ports Regulator of SA regularly hence funds were needed to increase capacity. Where there were issues, projects had been redesigned and in some instances lower quotes were obtained so projects still went ahead.

Mr Madiya stated that the DoT supported the amendment of the National Ports Act in order for the Ports Regulator of SA to be able to carry out its mandate. 

The Chairperson said that in the Committee’s next planning session it would have to identify entities on which it would do oversight. The issue was about what entities would be briefing the Committee on. Other role players that were involved also had to be taken into consideration. Perhaps other committees of Parliament did oversight over these role players. The parliamentary committees could also be brought on board. Transnet, the Department of Public Enterprises and the DoT were amongst those that could shed light over issues. He asked whether the Ports Regulator of SA had meetings under one roof with the DoT.

Mr Madiya said that the Maritime Branch of the DoT had scheduled meetings with maritime entities, the Ports Regulator of SA and the SAMSA. One issue discussed was the amendment of the National Ports Act.

Ms Tsautse said that the Ports Regulator of SA would push for the amendment of the National Ports Act in relation to the Ports Regulator of SA’s revenue model. Engagement with the DoT would also take place in regards to other amendments as well.

The meeting was adjourned.

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